Relevant and even prescient commentary on news, politics and the economy.


by Dale Coberly



An Overview of the Overview

The 2016 Trustees Report  didn’t have much new to say, so the usual commentators were free to say what they have always said, which is mostly wrong.

A careful reading of just the Overview (p 2 to 25 of the Report) will help us correct the dangerous misunderstandings that have been created by commenters who either don’t understand it themselves or just hope that you won’t understand what the Report actually says.

Let us begin with the Trustees own conclusion (p 25):

“With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”

“Can continue… to protect… future generations.” But there has been no informed discussion. no creative thinking, and no timely legislation. Instead, the politicians and the press keep repeating hysterical distortions to lead people to believe that Social Security faces a huge debt, a “looming crisis,” that, so far from “protecting future generations” will impose “crushing burdens on the young.”

The Trustees indeed report [page 5] an “actuarial deficit” of 11 trillion dollars, a number  the “non partisan experts” use to scare people who aren’t used to thinking with numbers.  Thinking with numbers leads easily to an approximation:  Eleven trillion dollars divided by 100 million workers is about 110 thousand dollars per worker.  Dividing that by 75 years yields about 1500 dollars per year per worker.  And to put that into terms workers are familiar with, that would be about twenty-eight dollars per week for an average worker (who is making about a thousand dollars per week).

Is this a huge burden?  The $ 28  does not go into a government black hole:  it comes back to the worker when he will need it most, with enough effective interest (automatically created by pay as you go financing in a growing economy) to provide for his basic needs when he is too old to work.   This is a reasonable cost for the benefit.

The Trustees don’t leave the reader having to trust my approximation. They state quite clearly [page 5] that the $ 11 Trillion Dollar actuarial deficit would require an “immediate and permanent” tax increase of 2.66 per cent. That 2.66% would be 27 dollars per week for a worker making  one thousand dollars per week.

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Clinton’s figured out how to ensure her victory: Threaten Sanders that if he doesn’t endorse her, pronto, she’ll begin campaigning as a triangulator.

The risk is that [Sanders] will lose his moment because some Clinton partisans already see a more centrist campaign as the best way to win over millions of middle-of-the-road voters who find Trump abhorrent. Sanders has to decide if accelerating his plans to endorse Clinton is now the best way to maximize progressive influence.

Sanders is making his long goodbye count, E.J. Dionne, Washington Post, today

So there it is.  The moment that Sanders endorses Clinton, Clinton will conclude that a more centrist campaign is the best way to win over millions of middle-of-the-road voters who find Trump abhorrent.  Because there are just so very many middle-of-the-road voters who find Trump abhorrent but find the idea of a Medicare-for-all-type healthcare system, a $15/hr. minimum wage, tuition-free public colleges and universities, and compelled reduction in the size and consequent economic and political power of a few mega-banks even more abhorrent.

Throw in sizable tax increases on the wealthy, and the abhorrence of this platform as compared with a Trump presidency shoots off the charts.  At least if you’re a Clinton partisan—Bill Daley, for example, who’s a Democrat only by convenience—and your Wall Street career depended initially upon your family contacts and later upon your Clinton ones.  Or you’ve made your Wall Street fortune the new-fashioned way: private equity.

The very definition of middle-of-the-road, in other words.  Just not the definition of middle-class.  Or working-class.  Unless your work is parlaying your money into ever greater political power in order to ensure a continued inflow of huge amounts of money.

Working-classless, maybe.

In any event we have it now from the horse’s mouth—someone in Clinton’s inner circle.  The risk is that Sanders will lose his moment because some Clinton partisans already see a more centrist campaign as the best way to win over middle-of-the-road voters with millions of dollars who find Trump abhorrent.

Too late, Bernie.  You missed your moment.  You can now withhold not only your endorsement but also your mailing list of three million donors, none of them middle-of-the-road ones.

And some of those three million donors and the many millions more who voted for you, being deemed not as important as the middle-of-the-road voters who hate the idea of a Medicare-for-all-type healthcare system, a $15/hr. minimum wage, tuition-free public colleges and universities, and compelled reduction in the size and consequent economic and political power of a few mega-banks, even more than they hate Trump, may find themselves hating Clinton even more than they hate Trump.  And every bit as much as those millions of middle-of-the-road voters hate a progressive policy platform.  Which is even more than they hate Trump.

What prompted this threat, presumably, was Sanders’ response in an interview with Jake Tapper on Tuesday, when asked what he thought it would take for Clinton to win over his supporters.  “We are trying to say to Secretary Clinton and the Clinton campaign, ‘Make it clear which side you are on,’” he said.  The punditry is up in arms about that.

I myself thought it was a bit harsh, when I read about it on Tuesday.  But Sanders’ instincts were right, apparently.

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NDd and Marketwatch

(Dan here)  Quoted is a summary and link to New Deal democrat‘s post at  on the pound sterling and Brexit impacting the US economy via Marketwatch:

The pound plunged early Friday as results from the U.K.’s referendum hit, but “since then the pound has gone sideways,” notes financial blogger New Deal Democrat in a post at

“While the bottom isn’t necessarily in, barring new and worse developments out of Europe, I would expect the pound in the next few months to fluctuate about its value at the bottom Friday morning,” the blogger writes.

Any big Brexit-related damage to the U.K. currency has already happened, New Deal Democrat argues. It didn’t happen over three months to a year, but on that single Friday — “everybody” knew sterling was in trouble and decided to sell.

This call helps make the blogger upbeat on the U.S. economy, playing down fears about the almighty dollar hampering growth.

“While a strengthened US$ is a headwind, the lower interest rates that this year’s annual Europanic is bringing are a boon,” the post says. “I continue to see Brexit as ‘a fire across the river’ that should not have more than a minor effect on the U.S. economy.”

Go here to read the full post.



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Why are so many pundits conflating U.S. blue-collar voters’ concerns that are similar to their British counterparts’ who voted for Brexit with the separate issue of whether the Brexit vote itself will influence U.S. blue-collar voters’ votes in November? These are completely different issues.

Some of our wisest political observers informed us that Brexit would be great news for Donald Trump, because it shows (somehow) that there may be more support here than expected for his nationalist message of restoring American greatness through restrictionist immigration policies and turning the clock back on globalization.

So it’s a bit surprising to see that a new Bloomberg/Morning Consult poll shows that Brexit will not influence the votes of a majority of Americans, and if anything, may benefit Hillary Clinton marginally more than Trump:

“A majority of U.S. voters — 57 percent — say they don’t expect the U.K. verdict will influence their vote in the presidential election. For the roughly quarter who say it will, almost half say it will make them more likely to support Democrat Hillary Clinton, while 35 percent say Republican Donald Trump.”

This is only one poll, so don’t place too much stock in it, but I wanted to highlight it to make a broader point: There is simply no reason to assume that the debate over globalization, which Trump joined with abig speech on trade yesterday, will automatically play in the Donald’s favor. Indeed, Trump is running a massive scam on American workers on many fronts, and the contrast between his positions and those of Hillary Clinton on trade and other economic matters may prove more important in the end than his blustery rhetoric.

Neil Irwin has a good piece this morning on Trump’s big trade speech, in which he pledged to rip up our trade deals with his  large and powerful hands and to bring manufacturing roaring back. As Irwin notes, Trump is right to highlight the very real possibility that trade deals have badly harmed American workers, and that elites have in many respects let those workers down. (Bernie Sanders, too, isrightly calling on Democrats to fully reckon with this phenomenon.) But as Irwin also notes, Trump is selling American workers a highly simplistic, anachronistic tale that doesn’t level with them about the likelihood of reversing trends in globalization and automation

Morning Plum, Greg Sargent, Washington Post, today

I’m certainly no fan of NYT columnist Thomas Friedman—he of “Go for the Grand Bargain, President Obama!” and “Michael Bloomberg for President!” fame.  But his column today is, in my opinion, exactly right.

The first several paragraphs sum up what has become clear to everyone following the news on the Brexit-vote aftermath: that the leaders of the Brexit movement harbored no compunctions about selling it with lies and gross distortions because they didn’t expect their campaign to actually end in, well, Brexit.  And that now that that these dogs have caught the car, they have no idea what to do with it.  They have the car keys but don’t know how to drive the car.

This certainly is why, as Sargent points out, the Brexit vote itself has not helped Donald Trump and instead appears to be helping Clinton slightly.

But the remainder of Friedman’s column addresses the separate issue—and clearly, it is that—of the reasons why so many Britons and Americans and citizens of several other Western countries are susceptible to the type of simple-elixir manipulation that apparently many Britons now regret that they fell for.

Friedman writes:

Because although withdrawing from the E.U. is not the right answer for Britain, the fact that this argument won, albeit with lies, tells you that people are feeling deeply anxious about something. It’s the story of our time: the pace of change in technology, globalization and climate have started to outrun the ability of our political systems to build the social, educational, community, workplace and political innovations needed for some citizens to keep up.

We have globalized trade and manufacturing, and we have introduced robots and artificial intelligence systems, far faster than we have designed the social safety nets, trade surge protectors and educational advancement options that would allow people caught in this transition to have the time, space and tools to thrive. It’s left a lot of people dizzy and dislocated.

At the same time, we have opened borders deliberately — or experienced the influx of illegal migration from failing states at an unprecedented scale — and this too has left some people feeling culturally unanchored, that they are losing their “home” in the deepest sense of that word. The physical reality of immigration, particularly in Europe, has run ahead of not only the host countries’ ability to integrate people but also of the immigrants’ ability to integrate themselves — and both are necessary for social stability.

And these rapid changes are taking place when our politics has never been more gridlocked and unable to respond with just common sense — like governments borrowing money at near zero interest to invest in much­-needed infrastructure that creates jobs and enables us to better exploit these technologies. “Political power in the West has been failing its own test of legitimacy and accountability since 2008 — and in its desperation has chosen to erode it further by unforgivably abdicating responsibility through the use of a referendum on the E.U.,” said Nader Mousavizadeh, who co-­leads the London­-based global consulting firm Macro Advisory Partners.

But we need to understand that “the issue before us is ‘integration’ not ‘immigration,’” Mousavizadeh added. The lived experience in most cities in Europe today, is the fact that “a pluralistic, multiethnic society has grown up here, actually rather peacefully, and it has brought enormous benefits and prosperity. We need to change the focus of the problem — and the solution — from the physical reality of immigration to the political and economic challenge of integration.” Schools, hospitals and public institutions generally will not rise to the challenge of the 21st century “if social integration is failing.”

Which brings me to another current conflation by much of the punditry: that Bernie Sanders has squandered his clout by waiting to endorse Clinton until after the party platform is completed, by which time most of his supporters already will be planning to vote for her, swayed partly by Trump’s simple awfulness and partly by Elizabeth Warren, who has started campaigning with Clinton.

That analysis misses two key points.  First, Sanders’s supporters who are not so thoroughly horrified at the thought of a Trump presidency that they have not yet decided to vote for Clinton care a great deal about the policies they will have some reason to believe will be enacted, or, conversely, blocked, by a Democratic White House teaming with a clearly ascendant and finally-high-profile progressive wing of what hopefully will be a Democratic-controlled Congress.

Second—and a point I’ve made repeatedly in my posts here at AB—there are two types of Trump voters or potential ones, and only one of these will matter to the outcome of the election.  Suffice it to say that the Build the Wall and Ban Muslims voters in the South and Southwest are not the ones who will matter.

The ones who will are Democrats in the Rust Belt who support much of Sanders’s proposed platform and are now considering voting for Trump.  And whose vote could turn on such things as discussions about what political consultants wouldn’t dream of advising their clients to discuss, but that Sanders did discuss during his campaign: hostile labor union policy, including NLRB member appointees; antitrust enforcement; banking regulations that reign in the political power of the financial services industry generally and the mega-banks in particular; the Consumer Financial Protection Bureau—what it is and does.

Free tuition at public colleges and universities.  Guaranteed access to healthcare.  Guaranteed medical and family leave, for the cost of $1.50 a week in, yes, taxes.  Increased Social Security benefits, in recognition of the demise of defined-benefit pensions.

As so many pundits note, and as Sanders himself says, the Sanders campaign has achieved a great deal in the general outlines of the party platform.  The process has been like pulling teeth, but still ….

But one of the Clinton campaign’s super PACs, I read a day or two ago, is about to flood the internet with ads reminding people that Trump is a misogynist—because apparently there are three or four voters who, although they already know this, will decide against voting for Trump after they’re reminded of it yet again.

And the Clinton campaign itself, I also read, has ads running on TV in some swing states apprising voters that in the ‘70s and ‘80s Clinton pushed some policies that helped children in Washington, DC and in Arkansas, and that as First Lady in the ‘90s she devised and helped push through the CHIPS healthcare insurance plan—not a trivial thing, by any stretch, but also not relevant to voters’ current concerns about this candidate and about the likelihood of major change of the sort so many people who badly want major change want.

Those who continue to cite Clinton’s popular-vote margin over Sanders in support of resistance to this overlook the critical fact that it was, until late in the primary seasons of both parties, broadly believed gospel that an economic populist could not win the general election—and that that, not some broad antipathy toward populist economic policy proposals, tells the tale of that popular-vote differential.  It is, for example, unlikely that a majority of African American and Hispanic voters oppose free public university and college tuition.  And universal, Medicare-like healthcare coverage.  And a $15/hr. minimum wage.  And guaranteed medical and family leave in exchange for a $1.50 weekly tax.  And the reduction of the size and economic and political power of the largest financial institutions.

Polls have not been taken on this, to my knowledge.  That’s too bad.  But in any event, Rust Belt voters considering voting for Trump despite rather than because of his personality and offensiveness would not be among those interviewed in a poll limited to Clinton primary voters.

The real hope for the Clinton campaign lies not just in showing Trump for what he is, not just regarding his temperament, breadth of ignorance, and breathtaking grifterism, and not just the Build the Wall and Ban Muslims policies that everyone already knows about, but also in apprising the pubic of his actual proposed fiscal policies.  And Paul Ryan’s.  And also every bit as much in Clinton’s appearing comfortable with the fact that her campaign’s car was caught by the Sanders dog.

And in seeming fine with allowing that dog’s tail to wag her campaign, to a very large extent.

The fallout from Brexit is already being recognized by U.S. voters as a warning about gullibility and a belief that any dramatic change is better than no or little change.  Turns out that some of the positive changes Britons were promised already have been withdrawn, and the changes that cannot be withdrawn aren’t particularly promising ones.  But as Friedman’s column makes clear, the status quo in the remaining EU is untenable, too, and the EU leaders now recognize that.  So there is a silver lining after all to the Brexit vote.  It’s just not one that helps Britain.  But in addition to helping the remaining EU members, it could help the Clinton campaign.



Finally, the Clinton campaign is being forced, by Trump’s speech yesterday on trade, to actually educate the public about Trump’s actual fiscal and regulatory policies.  Well, more accurately, it is Lawrence Mishel, president of the Economic Policy Institute, the source Trump cited more than a dozen times in that speech, who is doing that.  In spades.

Painful though it may be for the Clinton campaign to see someone who has the attention of the news media apprise the public that Trump’s fiscal and regulatory policies are long those of the Republican Party elite and Republican elected officials at every level of government—the very mission of which has been to crush ordinary workers, duly accomplished—it looks like it will have to suffer this indignity.

Which is better than having to do this themselves.  Anything is better than having to do that themselves.  For some reason.

Added 6/29 at 4:49 p.m.

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Who Voted to Leave and Who Voted to Stay – Updated


It is pretty clear who voted to stay and who voted to leave the EU in England.

Hat Tip to Sam Wang Princeton Election Consortium Brexit survey of the day. “The UK voters who dominated the vote to Leave are also the ones who have to live with the outcome for the least amount of time.” Another elite versus the commoners.

With a fear for snide comments on stats in return, reader voislav comments: “The analysis (Princeton Consortium)is a bit misleading because turnout also increased by age. Sky projects that the turnout for 18-24′s it was in the 30s and for 24-35′s in the 50′s, vs 80+% for the 55+ crowd. BBC shows lower turnout in younger areas of the country.

If you look at the Guardian analysis (link below) the correlation with age is not that strong, there is a much stronger correlation with education and income. Wealthier, more educated young people tend to be more politically engaged, so they dominated the youth vote.”

Median Age

Higher Educaction

Median Annual Income

Scatter plots taken from EU referendum: full results and analysis “The Guardian.” These plots are interactive and you can locate different areas and city of the country making it worthwhile to visit The Guardian site.

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Instead of 4% inflation target, set “net profit rate” target at 4%

The debate over whether the Fisher Effect is real has languished over the past year. It is hard to prove, and even I lost hope in it. However, I may have found the mechanism to make it work.

First, look at this graph of the net profit rate plotted with core inflation since 1958… Chart updated to show “Sweet Spot of Fisher Effect”.

net prof inf3

A recently very high net profit rate of 9% led to a very low inflation rate according to the graph. Firms had little pressure to raise prices with such high net profit rates.

So the key would be to lower the net profit rate to a sweet spot of 3% to 6%. Then firms would have more reason in the aggregate to raise prices to net protect profit rates. Then the central tendency of core inflation would rise to 2% according to the graph.

How could we lower the net profit rate? Drum roll please… raise the Fed rate.

So raising the Fed rate while we are on the right side of the sweet spot would raise core inflation. If we were on the left side of the sweet spot, the economy would contract away to the left from the sweet spot as the net profit rate goes too low. So the Fisher Effect could only work properly (raising the Fed rate to raise inflation) if the net profit rate puts core inflation on the right side of the core inflation target.

The reason why the Fisher Effect has never been seen before is that we have been rarely, if at all, on the right side of the sweet spot since 1958. Net profit rate only topped 4% in 2003 and 2004 when it reached 6%. Since 2009, it has been over 8%!

So instead of a 4% inflation target, it could be better for the Fed to shoot for a 4% target in the net profit rate.

Comments below please…


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A Clinton Blank Check? Or a Sanders Blank Check?

Long-time Republican strategists and campaign consultants privately acknowledge they are so certain of Hillary Clinton’s victory – and so worried about its impact on Senate races and GOP control of the Senate – that they are already considering a controversial tactic that explicitly acknowledges Donald Trump’s defeat.

The tactic, used by congressional Republicans two decades ago, late in the 1996 campaign, involves running television ads that urge voters to elect a Republican Congress so that Clinton won’t have “a blank check” as president.

When will GOP Senate campaigns throw Trump under the bus?, Stuart Rothenberg, Washington Post, today

The obvious Dem Senate and House candidates’ response would be, I would think:

Here’s what the Sanders congressional wing will propose: …  Clinton will sign most of it.  It’s not Clinton who, by voting for a Dem-controlled Congress, you’ll be giving a blank check.

Which is why Bernie Sanders and Elizabeth Warren are aggressively campaigning for a Dem Senate and a Dem House.

Enough said.  I would think.  (Well, okay, it would have to be said more subtly than that, since Clinton, after all, will be the presidential nominee.  But that wouldn’t be hard to do.)*

It is, in other words, the specific policy proposals that matter.

*Parenthetical added 6/28 at 8:46 p.m.

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The Tale of the Dragon Slayer

by Barkley Rosser  (via Econospeak)

The Tale of the Dragon Slayer

The background for this tale is that I have just finished attending the 9th MDEF conference on Dynamic Modeling in Economics and Finance (actually, Modelli Dynamiche Economiche e Finanza) in Urbino, Italy.  Alan Kirman was in attendance and was much frustrated (as was I) with the tendency for junior scholars from around the world to present very conventional neoclassical models, even if they were doing some interesting things with them, Cobb-Douglas production functions, aggregate, with ratex and rep agents, and the whole schmeer. When confronted, they would whimper and say that they did it so that it would be easier to get published, which I  am sure is true, and in today’s job market, I have sympathy. But they sure looked embarrassed and clearly mostly recognize that their models are fundamentally flawed.

At the social dinner last night, Alan told the following tale of the dragon slayer over dessert.  Some of these young scholars looked to be squirming a bit.

The dragon slayer was widely recognized as being the best in the world at his craft, for which he wandered about gaining praise and prestige.  Then one day, a wise man informed him that there are no dragons.  He became very depressed and soon dropped completely out of sight.

Then a few months later he reappeared, driving around in a fancy new car all dressed up  spiffily and with a beautiful woman hanging all over him in the car.  A friend asked him what was up.  He said, “I have started a school to teach others to become dragon slayers.”

Barkley Rosser

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